Iron ore, how low can it go?

Resources Corner

The big news in resources this week is once again the sliding iron ore price. While hovering around the US$90/tonne mark for some months we’ve seen spot prices for the steel making commodity dropping below US$85/tonne this week, a five year low.
 
It’s clear the price slide is due to a glut of supply for the commodity, but a death knell is sounding for smaller miners as we see the likes of BHP Billiton further increasing production. BHP CEO Andrew Mackenzie has suggested he doesn’t see the ore price pushing above $100/tonne in the short term; in fact BHP has made indications it will be expanding its Pilbara operations.
 
A clear indicator is Port Hedland’s August shipping figures; 37.4 million tonnes of iron ore was shipped from the Port, which represents an increase on volumes from the previous month.
 
Economic News
 
It was a busy week for economic data with an interest rates announcement from the RBA as well as current account and GDP figures coming from the ABS. 
 
The Reserve Bank’s cash rate remained at 2.5 per cent this month, which came as no surprise. Australia’s current account deficit was shown to have extended in August while the balance on exports and imports remained in deficit albeit smaller for July. GDP growth was positive in the second quarter; it came in above expectations with a growth rate of 3.1 per cent for the year to June.
 
The Reserve Bank of Australia Governor, Glenn Stevens, made it clear the RBA had factored the weakness into its latest monetary policy decision, “Resources sector investment spending is starting to decline significantly.”
 
Solid earnings results
 
Drill Search Energy Limited (ASX:DLS) has reported a record full year profit of $71.5 million on the back of record production and strength in the oil price. Production was up 209 per cent on last year with revenue jumping 279 per cent.
 
BlueScope Steel (ASX:BSL) has enjoyed good results from its turnaround plan lifting underlying net profit to $112.3 million and narrowing the net loss to $82.4 million. Revenue jumped 10 per cent to $7.98 billion. Bluescope forecast similar results into the first half of 2015 with further growth in domestic margins and contributions from recent acquisitions.
 
Fortescue Metals Group Limited (ASX:FMG) has lifted its full year profit by 56 per cent in the 2014 financial year. The iron ore producer says total iron ore shipments were up 54 per cent to 124.2 million tonnes. The company says paying down debt will be a priority with lower costs flagged to come online in the year ahead.
 
Pilbara focussed Fortescue Metals Group Limited (ASX:FMG) has achieved a record breaking August. The iron ore miner says it broke company records for ore processing facility production, tonnes railed, ship loaded tonnes and number of ships loaded. Over the month Fortescue shipped 15.16 million tonnes of iron ore on 82 ships, breaking both previous records.
 
Atlas Iron Limited (ASX:AGO) has rebounded to an annual profit from a loss of $242 million the year before. The iron ore miner generated a net profit of $17 million while revenue jumped 58 per cent over the 2014 financial year.
 
Room for improvement
 
Iluka Resources Limited (ASX:ILU) has seen net profit fall 66 per cent in the first half of 2014 to $11.7 million. The mineral sands miner has blamed the slide on lower prices with mineral sands revenue falling 10 per cent to $343.2 million. 
 
Alumina Limited (ASX:AWC) reported an increased first half net loss with the closure of the Point Henry smelter weighing on the result. Despite the company’s net loss extending to $US47.4 million in the 6 months to the end of June the aluminium company’s share price closed higher.
 
Gold talk
 
PanAust Limited (ASX:PNA) has closed the acquisition of an 80 per cent interest in the Frieda River Copper Gold Project in Papua New Guinea. PanAust has agreed to pay Glencore an initial US $25 million and reimburse the Swiss miner for its expenditures on the project since agreeing to purchase it on 1 November 2013.